US stock markets continued to seesaw on Tuesday following a day of global sell-offs sparked by fears that China’s economic boom is slowing.
By noon the Dow was up over 300 points as European markets closed up and investors reacted positively to China’s decision to cut interest rates. But the Dow closed 205 points down, or 1.29%. The S&P 500 ended the day down 25 points, 1.34%, and the Nasdaq closed 0.39% down.
The second day of drama came after investors continued to sell in China. The benchmark Shanghai composite index closed 7.6% lower on Tuesday following an 8.5% drop on Monday. Over three days the index has fallen 22%.
European markets reversed Monday’s losses but will be closely watched on Wednesday for reaction to the US news. In the UK, the FTSE 100 ended a 10-day losing streak to end up 3%, Germany’s Dax was up 5% and in France the CAC rose 4%.
US stock prices were initially buoyed by some positive economic news. The Conference Board’s consumer confidence index, which had declined in July, rebounded in August. The index now stands at 101.5, up from 91.0. The Commerce Department said new house sales rose 5.4% in July, slightly less than expected but still indicative of recovery in the housing market. Home resales jumped to a near eight-and-a-half-year high in July.
Ken Goldstein, economist at the Conference Board, said he expected more volatility to come in the financial markets despite Tuesday’s rally. “There’s nothing particularly new here,” he said. “China’s economy is slowing, we knew that.
“Somebody woke up last Thursday and headed for the exit and a stampede was on. Now they are back again,” said Goldstein. “It doesn’t say much about our financial geniuses.”
Goldstein said consumers could be affected by the stock market wobble, which could trigger a lack of confidence ahead of the all-important holiday season despite relatively good economic data on housing, jobs and manufacturing. “The more we scare the bejeezus out of the consumer, the more risk we face,” he said.
The morning rise comes after three days of falls on stock markets around the world that erased close to $3tn globally.
China’s central bank cut interest rates and eased borrowing requirements for banks amid the continuing fall. It was the fifth rate cut since November. Earlier this month China devalued its currency in a move aimed at reviving its slowing economy.
A slowdown in the world’s second-largest economy has rattled investors worldwide. The White House sought to reassure investors on Monday as the selloff continued. “There is no doubt the global economy is more interconnected that than it ever has been,” Josh Earnest, Barack Obama’s chief spokesman, said. “What I would encourage people to evaluate is the ongoing strength and resilience of the US economy.”
The People’s Bank of China said: “Currently, there are persisting downward pressures on the country’s economic growth. There has also been quite large volatility in global capital markets recently, and monetary policy tools need to be applied more flexibly.”
Gus Faucher, senior macroeconomist at PNC Financial, agreed volatility was likely to continue but the recent falls had been “overdone”. “We’ve had a six-year bull market and I’m not surprised to see a correction, but the domestic fundamentals look pretty solid,” he said.
The fall in stock markets comes as the Federal Reserve weighs its first hike in US interest rates since the recession. Paul Ashworth, chief US economist of Capital Economics, said it was too early to speculate on whether the market turmoil would delay any rise.
“There are no signs of any major downturn in the US economy, economic growth in China still appears to be slowing rather than collapsing and emerging markets are not about to endure a repeat of the 1997-98 Asian crisis. The current bout of market turmoil, if it continues, might persuade the Fed to hold off on raising interest rates in September. Since that volatility doesn’t reflect any genuine economic slump, however, we wouldn’t be surprised if it proved short-lived leaving the way open for the Fed to begin raising rates at some point this year,” he wrote in a note to investors. “Even a September rate hike is still a significant possibility if the turmoil abates over the remainder of this week.”
This article was written by Dominic Rushe in New York, for theguardian.com on Tuesday 25th August 2015 21.03 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010